Compare Brokers For Commodity Trading

Looking for brokers for commodity trading? We have compared 17 broker accounts (out of 147) that are suitable for you below.

We found 17 broker accounts (out of 147) that are suitable for Commodity.

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Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.

The Ultimate Guide to

How to Find the Best Brokers for Commodity Trading For You

Commodity Trading is the trading of a physical product that is typically bought and sold in an established financial exchange. Commodity trading can be a popular choice for traders because of the potentially increased returns (with the subsequently increased risks) offered by the high leverage usually associated with commodities.

These higher levels of leverage, coupled with the use of margin deposits where the broker essentially lends the trader the remaining portion of the actual commodity value, means a trader can make multiples of his investment if the commodity price moves in a favourable direction. These margin deposits will then usually be charged an overnight financing charge. For example, popular CFD broker City Index will charge an overnight fee +/– 2.5% annual charge above or below the relevant base rate

However, it is important to remember that the opposite is also true that if the market moves against the trader then their losses can be much more magnified.

For example:
1. A trader buys a commodities futures contract for gold, where the cost per ounce of gold is $1,000.
2. They agree to 2 contracts at a weight of 100 ounces per contract.
3. The full contract cost therefore totals $200,000 ($1,000 x 2 x 100).
4. The trader makes a margin deposit of 6% which totals $12,000 (0.06 x 1,000 x 2 x 100).
5. The broker is therefore technically lending them the difference of $188,000.
6. The price of gold then increases by 1% to $1010 per ounce.
7. The trader’s profit will therefore be $2000 ($1010 x 100 x 2 = $202,000 – $200,000).
8. The trader’s return on their investment will total 16.67% (2000/12000).

So, with an account balance of $12,000, the trader will have made a profit of $2000 (16.67%) with just a 1% price increase in the commodity.

However, it is important to note that if the price had fallen by the same amount, the trader would have made a loss of 16.67%, with the commodity having only suffered a 1% fall in price.

How Commodities are Traded

Commodities can typically be traded on the futures market through futures contracts, which are short term contracts with definite expiry dates. However, commodities may also be traded indirectly through the equities market, through mutual funds, through exchange-traded funds (ETFs) or through a contract for difference (CFD) trading platform.

Leverage and smaller contract sizes are two factors that attract traders to trading futures contracts as CFDs (contracts for difference) rather than traditional trading. With a combination of smaller contracts and leverage, the initial capital requirements for traders is significantly lower.

Unlike manufacturers, most traders do not want the actual delivery of the commodity they are trading, therefore a commodities trader will usually opt to roll-over the futures contract for that commodity. A commodities roll-over effectively extends the expiration date for the settlement of the contract, allowing the trader to avoid the costs associated with the settlement of an expired futures contract.

Frequently Asked Questions

What is a Commodity?
A commodity is a physical product that is typically bought and sold in an established financial exchange. However, retail traders can also trade commodities on a CFD trading platform. Regardless of which producer produces a commodity, it maintains uniformity even though there may be slight differences in product quality. Commodities can be broken down into four main categories: precious metals, non-precious metals, energy and agricultural.
What are the Most Popular Trading Commodities?
Some of the most popular commodities include:
How are Commodities Traded?
Commodities are usually traded on the futures market through futures contracts. These are short term contracts with definite expiry dates. In a commodity futures contract, the seller agrees to deliver an agreed quantity of a commodity at some date in the future at a pre-determined price. The buyer agrees to buy the product and to make payment by the agreed upon date.
What is the Commodity Futures Market?
The futures market is the exchange that connects the sellers of commodities with the buyers. Therefore, anyone seeking to trade in commodities may purchase a futures contract through a commodities broker. To establish a contract, a minimum deposit must be paid and a brokerage account would be established for the trader. Since commodity prices are always changing, the value of the brokerage account will change during the contract period. If the value falls below a certain level, the broker will make a margin call, requiring the account holder to deposit additional funds into the account to maintain an open position. Usually, these accounts are highly leveraged which means that small changes in price will result in huge potential profits or losses. The potential for huge profits is one of the characteristics that draw traders to commodities.

Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.